Earlier this week, ministers from the world's top economies, the G7, called for greater speed as financial watchdogs introduce comprehensive crypto regulation. This comes shortly after Terra's demise saw several crypto users suffer considerable losses in the space of a week. G7 Contacts FSB to Hurry Things Up The stablecoin failed to maintain its dollar peg and crashed as low as $0.07, with sister token LUNA not far behind. This created a ripple effect as general market anxiety destabilized even…
In recent days, the Solana network has registered another outage linked to the congestion of its network. It is not the first time the system has suffered from these problems, and the market is starting to worry.
Today we will better understand the problem of network congestion, starting from the functioning of Solana Mainnet Beta. Solana is not the first blockchain to find itself in this situation, but the market hopes that newer systems will solve this problem.
About Solana Mainnet Beta
First, let’s try to understand what a mainnet in the crypto universe is. In this industry, we recognize the existence of at least four different networks:
- Testnet: the part of the blockchain used for technical tests without the risk of losing money
- Signet: a kind of evolved testnet, where it is possible to test other aspects of the network (such as information propagation, etc.)
- Regtest: a virtual environment that allows you to test the network manually, checking every part of the blockchain
- Mainnet: this is the real blockchain network where money transactions happen.
This list simplifies the technical question and will help us continue our discussion. Solana launched SOL mainnet beta in 2021, initially without problems. In the following paragraph, we will understand why many investors are feeling frustrated trading with Solana right now.
The Solana congestion issue
By removing complicated technicalities, we can summarize the Solana mainnet problem below:
- $SOL price decline: $SOL price went from $141 to below $100 in a few days, following a crypto sell-off phase
- DeFi loans: when you request a loan on Solana, you need to back it by offering $SOL as collateral. When the collateral value falls, you need to provide the system with more $SOL to avoid liquidation
- Bot attack: what triggered the congestion was a bot attack. Solana has famously cheap transaction costs, and it is therefore convenient for multiple bot transactions.
The result of this mechanism was that several users could not increase their collateral since bots were congesting Solana.
A new network suffering from old problems?
If you have any experience in the world of congested networks, “Ethereum” should be the name on your mind now. Ethereum has been suffering from congestion for years, which is why its gas fees are extremely high.
A network such as Solana, presenting itself to the market as an “Ethereum killer”, should probably know better than this. Solana combines the PoS (Proof-of-Stake) and PoH (Proof-of-History) protocols to enable fast and cheap transactions.
An unwanted consequence of its high-level technology is that bots can quickly attack the system. Solana itself admitted that, on the weekend, bots were sending double transactions to the network.
The development team promised that the next mainnet version would resolve the issue, but questions remain over its reliability.
While Solana can still work in an excellent way on an average day, users lost their money in this phase. This is a young and promising network, and Solana is right in calling its mainnet “a beta version”.
Why didn’t dynamic fees solve the issue?
One may argue that a highly congested network typically records an increase in transaction fees. The mechanism should discourage minor on-chain transactions, leading to a decrease in the congestion phenomenon.
This is a fair expectation, but Solana suffered from a particular type of network congestion. Let us go back to the explanation given by the developers: bots kept on sending double transactions.
Double operations are generally not an issue since on-chain transactions should not have identical identification numbers. However, when someone purposely managed to insert double transactions on Solana, the system could not handle the data load.
Solana cannot charge two identical transactions with fees, which is the real source of the problem.
Even better, the network should do all it can to prevent malicious software from introducing double transactions in the system. Considering that Solana went mainstream only in 2021, it is likely that developers are gradually learning to handle the issues.
The latest incident only proves that Solana is not yet a mature network in the blockchain industry. The outage led users to lose money on their DeFi loans, but it may be a hard truth to accept for Solana users.
The network is moving its first steps in the credit and financial market, and investors should take this into account.
However, the lack of regulation on the matter appears to be less acceptable. Debtors have lost their money due to a mere technical issue, and a serious market cannot afford this.
Since no one can anticipate the attack of multiple bots, users may hesitate before asking for a DeFi loan. As cryptocurrencies operate in a grey area in the world market, we may never find who is to be blamed in these cases.
Solana needs to provide a solid answer to the market, no matter how young its project is. Otherwise, future blockchains will learn what past and current systems failed to understand, with the aim of replacing them.